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Japan; the greatest paradox in developmental economics. First, known for the Japanese postwar economic miracle and then the Great Stagnation after its financial crisis in the early 1990s. That stagnation is still running.

But what caused the economic miracle? The answer is twofold – firstly, postwar reconstruction and secondly, incorporation of modern technologies and industrial methods to a non-industrialised country. The second factor is what is driving China’s miraculous economy at its current rates.

Witness the following graph and the sharp decline (and recovery) of GDP in the years surrounding WWII:

Now here’s a provocative question. Could Fukishima play the same role that WWII did for the original economic miracle? Can rebuilding after the 2011 tsunami provide a sufficient Keynesian stimulus for the Japanese economy to restart the economic miracle?

The question is not so simple. Keynesian efforts to restart the Japanese economy failed in the 1990s because the throbbing heart of any capitalist system, the financial system, was paralysed by its defective ‘main bank’ system. True financial reform didn’t occur until the 2000s. And many Keynesian projects were simply ineffective because they built bridges to nowhere.

Now, Japan’s debt is literally the highest in the world. Can Japan’s government (or private sector) borrow enough money to rebuild the devastated archipelago  without crippling itself with a mountain of debt?

Weighty questions indeed.

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